ITV explores production studio options as demand for content booms

ITV is actively reviewing the future of its production arm ITV Studios, including the sale of a stake in the maker of island of love and bodyguard to raise the station’s depressed share price.

According to people familiar with the discussions, the London-based company has recently expressed an interest in ITV Studios in what remains a relatively buoyant production equipment market.

Even before the approaches, Chief Executive Carolyn McCall had been weighing options for the studio business, which analysts and executives estimate could be worth more than the £2.5bn market capitalization of its parent company ITV, the UK’s biggest commercial broadcaster.

One person who spoke to McCall about a studio sale said she was “fed up” with the stock market overseeing the deal and was “open to doing something.”

An ITV insider said a sale was likely unlikely due to longstanding opposition to the dissolution of the group’s integrated broadcaster-producer model, but added the valuation gap made the option “impossible to ignore”.

ITV Studios, which acts as a holding company for around 60 independent labels in 13 countries, is one of the largest producers of scripted and unscripted shows in Europe. ITV continues to seek acquisitions and has taken a majority stake in Plimsoll Productions, the natural history producer behind it A year on planet earthfor £103.5m in June.

Potential buyers include private equity groups and other large independent producers such as Bertelsmann’s Freemantle or FL Entertainment, Banijay’s parent company.

ITV said its board “continuously looks at ways to increase shareholder value, but we do not comment on speculation”.

Ever since ITV embarked on an ambitious acquisition spree to expand its production arm more than a decade ago, the channel has been regularly evaluating a potential spin-off or sale.

The fall in ITV’s share price since 2015, which has wiped out more than three-quarters of its market value, has reignited the appeal of a transaction that could help reset market expectations of the channel’s potential.

McCall admitted in July that she was looking for ways to get ITV out of the shadow of its old broadcasting business. “I really don’t think we’re recognized not just for the value of the studios business, but actually for the strength and resilience and actually for how much money the broadcast business is wasting,” she said.

Studios’ operating margin of 13 percent for the six months to June is well ahead of industry peers. Analysts at Citi this summer estimated that studios could be worth around £3bn based on comparable valuations from production companies.

Some analysts have argued that selling part of the studios would highlight the breadth of ITV’s assets – which span traditional television, production and ad-supported streaming – and set a “benchmark” to increase the valuation of the group as a whole. ITV will launch its new streaming platform ITVX in the autumn.

The studios last year reported £1.8bn in revenue and adjusted earnings before interest, tax, depreciation and amortization of £215m, which is expected to rise to £246m in 2022. Only around a third of its sales are commissioned by ITV and most of its sales are now generated outside the UK.

While the steady stream of ITV commissions is one of the strengths of the production business, pricing could pose potential complications for any minority partner going forward. ITV, meanwhile, may be reluctant to cede control of studios in a joint venture.